by Bill McBride on 4/10/2012 09:33:00 AM
Tuesday, April 10, 2012
UPDATE: Here are DeMarco's Remarks as Prepared for Delivery (with table and figures)
Some key comments on "strategic modifiers":
As I have noted the NPV results alone are not the sole basis for the decision on whether the Enterprises should pursue principal forgiveness. One factor that needs to be considered is the borrower incentive effects. That means, will some percentage of borrowers who are current on their loans, be encouraged to either claim a hardship or actually go delinquent to capture the benefits of principal forgiveness?Here is the webcast for the Speech by FHFA acting director Edward DeMarco: "Addressing the Weak Housing Market: Is Principal Reduction the Answer?" at the The Brookings Institution, 1775 Massachusetts Ave., NW Washington, DC.
This is a particular concern for the Enterprises because unlike other mortgage market participants that can pick and choose where principal forgiveness makes sense, the Enterprises must develop the program to be implemented by more than one thousand seller/servicers. In addition, the Enterprises will have to publicly announce this program and borrower awareness of the possibility of receiving a principal reduction modification will be heightened among Enterprise borrowers. So as opposed to more targeted individual efforts, or the current opacity of the HAMP process, there is a greater possibility that borrower incentive effects would take place on an Enterprise-wide principal forgiveness program.
It is difficult to model these borrower incentive effects with any precision. What we can do is give a sense of how many current borrowers would have to become “strategic modifiers” for the NPV economic benefit provided by the HAMP triple PRA incentives to be eliminated. In this context, a “strategic modifier” would be a borrower that either claims a financial hardship or misses two consecutive mortgage payments in order to attempt to qualify for HAMP and a principal forgiveness modification.
Following the speech, there will be a discussion including
Moderator: Ted Gayer, Brookings Co-Director, Economic Studies
Mark Fleming, Chief Economist, CoreLogic
Paul Nikodem, Executive Director, Head of Mortgage Credit Research, Nomura Securities International
Anthony B. Sanders, Professor, George Mason University
Andrew Jakabovics, Senior Director, Policy Development and Research, Enterprise Community Partners, Inc.
Posted by Bill McBride on 4/10/2012 09:33:00 AM